Transcription
Here's my take. As the war with Iran blows up and cools down from week to week, one trend is clear. The biggest beneficiary of this conflict is China. Beijing did not have to fire a shot, spend vast sums, or use up political capital. But it has gained more from this crisis than any other in three decades.
The war accelerated three of China's long-held goals: a Middle East less dependent on America, a world more dependent on critical Chinese technology, and a reputation for Beijing as a serious and steady world power. Beijing has not tried to replace Washington as the Middle East's military guarantor. That would require expensive commitments. Its aim has been simpler and more subtle: get Gulf States to detach somewhat from the American orbit.
Donald Trump is doing much of that work for Xi Jinping. America's Gulf allies have watched as Washington waged this war in chaotic fashion and with little regard for the damage inflicted on their cities, infrastructure, and economies. The Gulf is now dividing into two camps. The United Arab Emirates is drawing closer to Israel and Washington. But a larger group led by Saudi Arabia and including Qatar, Oman, and perhaps Iraq and even Turkey is likely to seek long-term security through a balance, continued ties with the United States, but also dialogue with Iran and better relations with China. That is precisely the regional order Beijing has favored.
In 2023, China brokered the restoration of diplomatic relations between Saudi Arabia and Iran. Riad has since resisted joining certain American-led joint data center and computer chip projects. It has bought Chinese missiles and drones, held exercises with the Chinese Navy, and explored local production of Wing Loon combat drones. Gulf countries accounted for more than 80% of Chinese defense exports to the Middle East from 2016 through 2025. No one is trying to replace America's security umbrella, but they want options, and options reduce American leverage.
China's more impressive victory is geoeconomic. At first glance, a country that imports about 70% of its oil should be among the war's biggest losers. Yet, China has weathered the shock better than most countries because it spent years preparing. It diversified suppliers, built what is estimated to be the world's largest oil stockpile, continued using coal and expanded nuclear power, and electrified its economy on a scale no other major country has matched. Electricity now accounts for about 30% of Chinese energy consumption, almost 40% more than in the United States or Europe. China installed more than half of all new global wind and solar capacity in 2024. For these reasons, China was able to cut back on its imported oil purchases during the war by some 4 million barrels a day.
The war has become a giant advertisement for China's critical technologies. Governments everywhere are looking to build up their solar power, batteries, wind turbines, electric vehicles, and grids. China controls about 91% of global solar panel manufacturing capacity and 89% of lithium ion battery capacity. Chinese firms manufacture at least 70% of almost all clean energy technologies tracked by Bloomberg. The longer energy insecurity persists, the more the world will buy into industries China dominates.
The war also advances a key Chinese goal, weakening the dollar's hold over global commerce. Iran reportedly allowed some tankers through the Strait of Hormuz on the condition that transactions be settled in Chinese renminbi. China and its partners have effectively expanded renminbi-dominated trade to reduce exposure to American sanctions. The shift will be gradual, but the trend is now unmistakable: away from dollar dominance.
Finally, there's the reputational windfall. The Trump administration entered this war with grand goals: regime change, destruction of Iran's nuclear program, eradicating its ballistic missile capabilities, and its support for regional proxies. It has achieved none durably. Instead, it is now hoping simply to open the Strait of Hormuz, which was open before the war began. Donald Trump chose this war and in doing so blew through tens of billions of dollars, wasted America's munitions, diverted military assets from Asia, unsettled allies, and demonstrated that even with America's enormous power, a misguided strategy and constantly changing tactics will produce bad results.
China did remarkably little. It kept buying Iranian oil, maintained relations with the Gulf States, avoided the costs of defending Iran or policing the Gulf. This is Beijing's preferred approach: no dramatic confrontations, but rather the steady accumulation of influence. Over the last 25 years, the United States has exhausted itself in three major military adventures in the greater Middle East. While China has accumulated manufacturing power, technological capacity, and diplomatic relationships, Washington acts, Beijing waits. China has paid costs for this war: higher energy prices, disrupted supply chains, and weaker global demand. But power is always relative. Measured against the damage to America's goals, alliances, and credibility, China has come out ahead.
More than a year ago, China decided to remind the world just how easily it can choke the global economy. Last April, in response to US tariffs, Beijing briefly tightened exports of rare earth metals, which make up the tiny magnets inside everything from phones to cars to fighter jets. Edward Fishman of the Council on Foreign Relations labeled the move "the most effective use of economic warfare we have seen in recent years," and the West has been scrambling ever since for a strategy to loosen China's grip.
But it is easier said than done, as Japan learned the hard way. Despite the name, rare earths are not actually rare. They are 17 metallic elements scattered in the Earth's crust on every continent. What is rare, though, is the capacity to refine them. It is a filthy, expensive process that leaves behind toxic waste. Decades ago, China made a long-term bet on an industry that many other countries were happy to avoid. As former Chinese leader Deng Xiaoping famously said, "The Middle East has oil. China has rare earths." Today, this bet has paid off. Beijing now refines roughly 90% of the world's rare earth supply.
Japan discovered the danger of China's dominance long before anyone else. Back in 2010, a Chinese fishing trawler rammed two Japanese coast guard vessels near the Japanese-controlled Senkaku Islands, which China claims. After the Japanese authorities arrested the Chinese captain, Beijing retaliated by freezing rare earth shipments to Japan. At the time, Japan relied on China for about 90% of its rare earths imports. Even Tokyo's own officials were caught flat-footed. Tatsuya Terazawa, then in charge of economic policy at Japan's trade ministry, recently admitted to the New York Times that at the time he had "zero knowledge about rare earths."
But by the next month, Japan had pivoted to an urgent and comprehensive strategy focused on reducing demand, building stockpiles, recycling material, and, most crucially, investing in mines abroad to secure its own supply. The country's crowning achievement was backing a struggling Australian mining company called Lynas, which digs up ore in the outback and refines it 5,000 miles away in Malaysia. Nearly 16 years on, Japan's approach has led to steady but slow results. It has cut its overall rare earth consumption in half, but it still relies on China for between 60 and 70% of its rare earth usage. While down from 90%, that is still a very high level of dependence.
But it meant that when China restricted exports again this year after a diplomatic spat over Taiwan, Japan was much better prepared. It released stockpiles and it could use its supplies from Lynas, the miner it rescued 15 years earlier, which has now become the biggest rare earth producer outside of China.
So, what can the West learn from Japan? The first lesson is patience. President Trump has declared it would take about a year for the US to secure enough rare earth supplies. That statement is totally divorced from reality. Graceland Bascaran and Meredith Schwarz of the Center for Strategic and International Studies write that Japan has put itself on permanent alert for more than a decade and pushed its new agenda forward aggressively. The West needs the same sustained attention. They argue instead of momentary ramp-ups during crises which then collapse once there is calm.
The second lesson is about friends. Japan needed Australia's mines, Malaysia's refineries, France's recycling plants, and American capital and technology to reduce its reliance on Beijing. No country alone can break China's near monopoly on rare earths. The Trump administration, to its credit, appears to understand this. It has gathered 55 countries and signed agreements on nearly every continent regarding critical materials and rare earths. But that cooperation is an outlier in its broader "America alone" strategy. Trump has hit those same friends with an onslaught of tariffs and abuse. Allies watching Washington today might be quietly wondering whether depending on America is really so much better than working with